Samsung Asset Management will list leveraged single-stock financial products for Samsung Electronics and SK hynix on the 27th. Samsung Asset Management emphasized its ample liquidity, operational know-how, and the first-ever adoption of an in-kind subscription method.
On the morning of the 26th, at The Plaza Hotel in Sogong-dong, Seoul, Samsung Asset Management held a press briefing to introduce the management strategy, investment uses, and investor cautions for two KODEX single-stock leveraged products that list tomorrow.
KODEX Samsung Electronics Single-Stock Leverage and KODEX SK hynix Single-Stock Leverage, which Samsung Asset Management is launching, track twice the daily return of Samsung Electronics and SK hynix.
On the 27th, eight asset managers, including Samsung Asset Management, are set to simultaneously launch single-stock leveraged financial products. Samsung Asset Management highlighted as differentiators its ample liquidity and know-how in managing in-kind leverage, as well as the in-kind subscription method being introduced for the first time in leveraged products.
First, the company said the products will be launched as in-kind leverage products rather than futures leverage. Lim Tae-hyeok, head of ETF Management at Samsung Asset Management, said, "In-kind leverage has three advantages compared with futures leverage," adding, "First, because the futures weight in the portfolio is smaller than in a futures leverage structure, it can reduce trading costs that occur each month when rolling over held futures."
It also said that, depending on conditions in the cash and futures markets, the products can trade with flexibility, helping mitigate risks from market impact, and that dividends are generated from the held cash equities. The dividends generated will be distributed at year-end.
It also emphasized that, for the first time among domestic leveraged financial products, the creation and redemption method is designed as an in-kind equity subscription. Existing domestic leveraged exchange-traded funds (ETF) were designed with a cash subscription method. However, in the case of cash subscriptions, when managers traded directly, brokerage commissions and the security transaction tax were incurred by the fund. In contrast, with in-kind equity subscriptions, the equities are delivered as is, so trading commissions and the security transaction tax do not occur, it said.
Lim said, "With this in-kind equity subscription design, we expect an annual 1.1%–1.4% reduction in transaction costs."
It also stressed that, because leveraged products are suited to ultra-short-term trading, ample liquidity is important so investors can trade at fair prices when they want. Samsung Asset Management said it has secured 25 authorized participants (AP), the most in the industry, and 15 liquidity providers (LP) for the single-stock leveraged products, and explained that, upon listing, it will provide ample liquidity through the largest number of partners in the industry.
However, as this is the first time single-stock leveraged financial products are being introduced domestically, it also explained points of caution.
Kim Do-hyeong, head of ETF Consulting, said, "Single-stock leveraged products implement a leverage effect using cash equities and futures," adding, "Therefore, gains and losses can both be double, and unlike leveraged ETFs, there is no diversification effect at all, making these financial products relatively high risk."
Also, because the price limit for a single stock is ±30%, the price limit for a single-stock leveraged financial product reaches ±60%. Investors must also beware of the "negative compounding effect," in which losses can occur in a sideways market during long-term investing even if the stock price returns to the initial purchase price.